In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following must be true for this firm?
A)MR = MC and P = ATC.
B)MR = MC and P ATC.
C)MR MC and P = ATC.
D)P = MR = MC ATC.

Question

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following must be true for this firm?
A)MR = MC and P = ATC.
B)MR = MC and P > ATC.
C)MR > MC and P = ATC.
D)P = MR = MC > ATC.

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm produces at the point where MR=MC to maximize profits. Since the firm is earning positive economic profits, P must be greater than ATC. Therefore, the correct choice is B, where MR=MC and P>ATC.

In the Short Run, a Monopolistically Competitive Firm Produces at the Optimal